Insurance

Lennar Wins Texas Case Over Insurance Coverage For EIFS Fix

It's a vexing question, and the answer varies from state to state: If a builder discovers a defect in its product and repairs the problem before being sued, should the company's liability insurance pay for the repair?

In Texas, the answer is yes — at least, that's the decision the Texas Supreme Court handed down in the case of Lennar v. Markel

The Southeast Texas Record has the story here: ("Texas SC: Insurer must pay homebuilder for costs of voluntary remediation," by Jessica M. Karmasek). "The Texas Supreme Court last week upheld a jury verdict requiring an insurer to pay more than $6 million in costs to a homebuilder that voluntarily replaced defective imitation stucco siding in hundreds of houses," the paper reports.

"Lennar, having determined that homes built with an exterior insulation and finish system, or EIFS, suffer serious water damage that worsens over time, undertook to remove the product from all of the homes it had built and replaced it with conventional stucco," the paper reports. Lennar told its insurance companies that it would be claiming the costs against its liability coverage; but the insurers denied the claim, arguing that Lennar wasn't forced to do the repairs by legal action.

The Texas court, 12 years after Lennar started its repair work, has sided with the builder. Interestingly, the court concluded that Markel, the insurance company, was on the hook for all of Lennar's costs to remove all the EIFS from buildings simply in order to determine whether water damage had occurred — even when the finding was negative. Knowing that EIFS was likely to create moisture damage to buildings, the court reasoned, Lennar had to remove all the cladding from every home, and the insurance company should pay the costs even though some portions of the houses were undamaged.

"We are not confronted with a situation in which the existence of damage was doubtful," the court noted. "Markel concedes that each of the 465 homes for which Lennar sought to recover remediation costs was actually damaged."